If we’ve learnt anything from the 1994 film Richie Rich, it’s that the future is of your business is uncertain.
If something happens that has the power to change the structure of the company, like a founding member departing or the business being sold, there can be drastic ramifications for all parties. Unfortunately, when it comes to business succession, there is always potential for things to get ugly.
Fewer than one in four private companies have a formal business succession plan in place if this occurs. But this doesn’t have to be the case.
By preparing a succession plan early, your business will be prepared for the unexpected. You should be confident that your business will remain in good health and good hands long into the future.
Protect Your Riches
Why are business succession plans important? Let’s look at Richie Rich:
Richard Rich Sr. and Regina Rich are the highly successful billionaires of Rich Corporation. During a business to England, they find a bomb on their plane, placed there by the greedy CFO, Laurence Van Dough. Although they throw the bomb out of the plane and survive the crash, they can’t be contacted for some time.
In their absence, the CFO-gone-wrong, Van Dough, assumes control of the company. In searching for the Rich family fortune, he cuts all charity donations and closes the United Tool factory, a recently opened business which employed many of local working class families. Thankfully, however, little Richie Rich Jr. outsmarts the rogue CFO, heroically taking over the company and restoring business as usual to the Rich Corporation.
It begs the question, just how dramatic would the Richie Rich movie have been if Rich Corporation had an effective succession plan? Below we discuss the essentials of succession planning.
How to Develop Your Business Succession Plan
As a first port of call, discuss your wishes with your family and seek advice from your lawyer, accountant and business advisor.
When you’re ready to draw up your plan, there are free templates available from the government that are relatively easy to use. If you need help, talk to your advisors, but ensure you take an active role in the process. It’s your business so what happens to it should be driven by what you want.
As there are no set rules on the contents of a succession plan, it’ll be particularly tailored to your given situation. However, there are a few things that are important to include.
Your succession plan should have three main sections:
The first is your title page.
On your title page you should include your business logo and name, the owner’s name and title, as well as your Australian Business Number (ABN) and your Australian Company Number (ACN). And don’t forget to include the date it was prepared. This may become incredibly important should legal teams get involved.
The second part is your succession section.
Here you should specify the structure of the business (sole trader, partnership, trust or company) and the current owner(s). After that, you’ll need to include the successor’s details, the type of succession (full or partial) and the timeframe that this will be implemented. You should also state any restrictions placed on the successor, such as whether you’ll retain some of the control of the business, or if branding can be changed, for example.
And be specific about what will happen to the personnel and any training and skill retention strategies that are in place. As well as this, you should also include all important contracts and legal documents, such as buy-sell agreements and whether owners have wills and testaments (particularly important in the case of death). Further, don’t forget your insurance policies, risk management plans and any contingencies you have in place.
The third section concerns finances.
In this section, you should include the value of your business, buyout clauses, taxation details and retirement income agreements. In the event that the business is being sold during the succession, you should specify details of sale, such as the asking price, length of time the business will be on the market, and who will receive the proceeds.
No one should have to resort to Richie Rich’s drastic measures to regain control of a company that’s rightfully yours. Creating a business succession plan will give you confidence that your business’ future remains in safe hands.